OFHEO Proposes Corporate Governance Rule for GSEs
April 7, 2004
WASHINGTON, D.C. - The Office of Federal Housing Enterprise Oversight (OFHEO) is proposing new standards for corporate governance to address current weaknesses and help reduce the potential for future corporate misconduct. The amendments to the existing regulation would separate the CEO and Chairman of the Board positions at the Enterprises, establish term and age limits for the Board of Directors, and set other standards and requirements for the conduct and operations of the management and Boards of the Enterprises.
"As government-sponsored enterprises, Fannie Mae and Freddie Mac should be held to the highest standards of business conduct and corporate governance and that is why I am proposing to implement stronger corporate governance requirements," said Armando Falcon, Director of the Office of Federal Housing Enterprise Oversight (OFHEO).
The rule changes stem, in part, from the findings and recommendations of OFHEO's special examination of accounting and management problems at Freddie Mac.
The major improvements proposed in this rule include:
- Separating CEO and Chairman functions
- Limiting Directors to ten years of service and an age limit of 72
- Enhancing information flows to the Boards of Directors
- Requiring audit partner rotation every five years and auditor rotation every ten years
- Requiring the Board and Committees to meet more frequently
- Additional rules for the independence of Board members
- Requiring "appropriate and reasonable" compensation that looks to legal compliance and organizational stability and not just to earnings
- Requiring at a minimum of every three years, a review of codes of conduct
- Requiring the Boards of Directors to remain informed of the companies' growth plans and resources to manage risks.
Upon publication in the Federal Register, the rule will be open for public comment for a 60-day period.